An Actproviding credits against certain taxes for
investing in New Jersey emerging technology businesses, and amending P.L.1997,
c.349, and supplementing chapter 4 of Title 54A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 1 of P.L.1997,
c.349 (C.54:10A-5.28) is amended to read as follows:

1. [This act]Sections 1 through 3
of P.L.1997, c.349 (C.54:10A-5.28 through 54:10A-5.30) and section 4 of P.L.
, c. (C. )
(pending before the Legislature as this bill) shall be known and may be
cited as the "[Small] New [Jersey-based
High-Technology Business Investment]Jersey Angel Investor Tax Credit Act."

(cf: P.L.1997, c.349, s.1)

2. Section 2 of P.L.1997,
c.349 (C.54:10A-5.29) is amended to read as follows:

2. As used in this act:

"Advanced computing"
means a technology used in the designing and developing of computing hardware
and software, including innovations in designing the full spectrum of hardware
from hand-held calculators to super computers, and peripheral equipment[;].

"Advanced materials"
means materials with engineered properties created through the development of
specialized processing and synthesis technology, including ceramics, high
value-added metals, electronic materials, composites, polymers, and
biomaterials[;].

"Biotechnology"
means the continually expanding body of fundamental knowledge about the
functioning of biological systems from the macro level to the molecular and
sub-atomic levels, as well as novel products, services, technologies and
sub-technologies developed as a result of insights gained from research
advances which add to that body of fundamental knowledge[;].

"Control[,]" with respect to a
corporation[,] means ownership,
directly or indirectly, of stock possessing 80% or more of the total combined
voting power of all classes of the stock of the corporation entitled to vote;
and "control[,]" with respect to a
trust[,] means ownership,
directly or indirectly, of 80% or more of the beneficial interest in the
principal or income of the trust. The ownership of stock in a corporation, of
a capital or profits interest in a partnership or association or of a
beneficial interest in a trust shall be determined in accordance with the rules
for constructive ownership of stock provided in subsection (c) of section 267
of the federal Internal Revenue Code of 1986[,26 U.S.C.s.267](26 U.S.C. s.267),
other than paragraph (3) of subsection (c) of that section[;].

"Controlled group"
means one or more chains of corporations connected through stock ownership with
a common parent corporation if stock possessing at least 80% of the voting
power of all classes of stock of each of the corporations is owned directly or
indirectly by one or more of the corporations and the common parent owns
directly stock possessing at least 80% of the voting power of all classes of
stock of at least one of the other corporations[;].

"Director" means the
Director of the Division of Taxation in the Department of the Treasury[;].

"Medical device
technology" means a technology involving any medical equipment or product
(other than a pharmaceutical product) that has therapeutic value, diagnostic
value, or both, and is regulated by the federal Food and Drug Administration[;].

"New Jersey emerging
technology business" means a company doing business, employing or owning
capital or property, or maintaining an office, in this State that has qualified
research expenses paid or incurred for research conducted in this State or
conducts pilot scale manufacturing in this State, and has fewer than 225
employees, of whom at least 75 percent are filling a position in New Jersey.

"Partnership" means
a syndicate, group, pool, joint venture or other unincorporated organization
through or by means of which any business, financial operation or venture is
carried on, and which is not a trust or estate, a corporation or a sole
proprietorship[;].

"Pilot scale
manufacturing" means design, construction, and testing of preproduction
prototypes and models in the fields of advanced computing, advanced materials,
biotechnology, electronic device technology, [environmental
technology, and]life
sciences, medical device technology, and renewable energy technology,
other than for commercial sale, excluding sales of prototypes or sales for
market testing if total gross receipts, as calculated [pursuant to]in the manner
provided in section 6 of P.L.1945, c.162 (C.54:10A-6), from such sales of
the product, service or process do not exceed $1,000,000[;].

"Qualified
investment" means the non-refundable [investment,
at risk in a small New Jersey-based high-technology business,]transfer of cash [that is transferred] to [the]a[small] New [Jersey-based
high-technology]Jersey
emerging technology business by a taxpayer that is not a related person of
the [small] New [Jersey-based
high-technology]Jersey
emerging technology business, the transfer of which is in connection with either
(1) a transaction in exchange for stock, interests in partnerships or joint
ventures, licenses (exclusive or non-exclusive), rights to use technology,
marketing rights, warrants, options or any items similar to those included
herein, including but not limited to options or rights to acquire any of the
items included herein; or (2) a purchase, production or research agreement.

a. a corporation,
partnership, association or trust controlled by the taxpayer;

b. an individual,
corporation, partnership, association or trust that is in the control of the
taxpayer;

c. a corporation,
partnership, association or trust controlled by an individual, corporation,
partnership, association or trust that is in the control of the taxpayer; or

d. a member of the same
controlled group as the taxpayer[;].

“Renewable energy
technology” means a technology involving the generation of electricity from
solar energy; wind energy; wave or tidal action; geothermal energy; the
combustion of gas from the anaerobic digestion of food waste and sewage sludge
at a biomass generating facility; and the combustion of methane gas captured
from a landfill; a fuel cell powered by methanol, ethanol, landfill gas,
digestor gas, biomass gas, or other renewable fuel but not powered by a fossil
fuel.

["Small New Jersey-based high-technology
business" means a corporation doing business, employing or owning capital
or property, or maintaining an office, in this State that has qualified
research expenses paid or incurred for research conducted in this State or
conducts pilot scale manufacturing in this State, and has fewer than 225 employees,
of whom 75% are New Jersey-based employees filling a position or job in this
State; and]

"Tax year" means the
fiscal or calendar accounting year of a taxpayer.

(cf: P.L.1997, c.349, s.2)

3. Section 3 of P.L.1997,
c.349 (C.54:10A-5.30) is amended to read as follows:

3. a. A taxpayer, upon
approval of the taxpayer’s application therefor by the New Jersey Economic
Development Authority and in consultation with the director, shall be
allowed a credit against the tax imposed pursuant to section 5 of P.L.1945,
c.162 (C.54:10A-5), in an amount equal to 10% of the qualified investment made
by the taxpayer [during
each of the three tax years beginning on or after January 1 next following
enactment of this act,]
in a [small] New [Jersey-based high-technology]Jersey emerging
technology business, up to a maximum allowed credit of $500,000 for the tax
year for each qualified investment made by the taxpayer. [An unused credit may be
carried forward for use in future years, subject to the $500,000 per year limitation.]

b. A credit shall not be
allowed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24), for expenses
paid from funds for which a credit is allowed, or which are includable in the
calculation of a credit allowed, under this section.

[The tax imposed for a tax year pursuant to
section 5 of P.L.1945, c.162, shall first be reduced by the amount of any
credit allowed pursuant to section 19 of P.L.1983, c.303 (C.52:27H-78), then by
any credit allowed pursuant to section 12 of P.L.1985, c.227 (C.55:19-13), then
by any credit allowed pursuant to section 42 of P.L.1987, c.102 (C.54:10A-5.3),
then by any credit allowed under section 3 of P.L.1993, c.170 (C.54:10A-5.6),
then by any credit allowed under section 3 or 4 of P.L.1993, c.171
(C.54:10A-5.18 or C.54:10A-5.19), then by any credit allowed under section 1 of
P.L.1993, c.175 (C.54:10A-5.24), and then by any credit allowed under section 1
of P.L.1993, c.150 (C.27:26A-15), prior to applying any credits allowable
pursuant to this section. Credits allowable pursuant to this section shall be
applied in the order of the credits' tax years. The amount of the credits
applied under this section against the tax imposed pursuant to section 5 of
P.L.1945, c.162, for a tax year shall not exceed 50% of the tax liability
otherwise due and shall not reduce the tax liability to an amount less than the
statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162.]Notwithstanding any
other provision of law, the order of priority in which the credit allowed by
this section and any other credits allowed by law may be taken shall be as
prescribed by the director.

c. Except as provided in
subsection d. of this section, the amount of tax year credit otherwise
allowable under this section which cannot be applied for the tax year against
tax liability otherwise due for that tax year[to the limitations of
subsection b. of this section]
may either be carried over, if necessary, to the 15 tax years following [a credit's]the tax year for
which the credit was allowed or, at the
election of the taxpayer, be claimed as and treated as an overpayment
for the purposes of R.S.54:49-15, provided, however, that section 7 of
P.L.1992, c.175 (C.54:49-15.1) shall not apply.

d. A taxpayer may not carry
over any amount of credit [or
credits] allowed
under subsection a. of this section to a tax year during which a corporate
acquisition with respect to which the taxpayer was a target corporation
occurred or during which the taxpayer was a party to a merger or a
consolidation, or to any subsequent tax year, if the credit was allowed for a
tax year prior to the year of acquisition, merger or consolidation, except that
if in the case of a corporate merger or corporate consolidation the taxpayer
can demonstrate, through the submission of a copy of the plan of merger or
consolidation and such other evidence as may be required by the director, the
identity of the constituent corporation which was the acquiring person, a
credit allowed to the acquiring person may be carried over by the taxpayer. As
used in this subsection, "acquiring person" means the constituent
corporation the stockholders of which own the largest proportion of the total
voting power in the surviving or consolidated corporation after the merger or
consolidation.

e. The Executive
Director of the New Jersey Economic Development Authority, in consultation with
the director, shall adopt rules in accordance with the "Administrative
Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) as are necessary to
implement sections 1 through 3 of P.L.1997, c.349 (C.54:10A-5.28 through
54:10A-5.30) and section 4 of P.L. , c. (C. ) (pending before the
Legislature as this bill), including but not limited to: examples of and the
determination of qualified investments of which applicants must provide
documentation with their tax credit application; the promulgation of procedures
and forms necessary to apply for a credit; and provisions for credit applicants
to be charged an initial application fee, and ongoing service fees, to cover
the administrative costs related to the credit.

The amount of credits approved
by the Executive Director of the New Jersey Economic Development Authority, and
in consultation with the director, pursuant to subsection a. of this section
and pursuant to section 4 of P.L. , c. (C. ) (pending before the
Legislature as this bill) shall not exceed a cumulative total of $25,000,000 in
any calendar year to apply against the tax imposed pursuant to section 5 of
P.L.1945, c.162 (C.54:10A-5), and the tax imposed pursuant to the "New
Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. If the cumulative
amount of credits allowed to taxpayers in a calendar year exceeds the amount of
credits available in that year, then taxpayers who have first applied for and
have not been allowed a credit amount for that reason shall be allowed, in the
order in which they have submitted an application, the amount of the tax credit
on the first day of the next succeeding calendar year in which tax credits
under this section and section 4 of P.L. , c. (C. ) (pending
before the Legislature as this bill) are not in excess of the amount of credits
available.

(cf: P.L.1997, c.349, s.3)

4. (New section) a. A
taxpayer, upon approval of the taxpayer’s application therefor by the New
Jersey Economic Development Authority, and in consultation with the director,
shall be allowed a credit against the tax otherwise due for the taxable year
under the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., in an
amount equal to 10 percent of the qualified investment made by the taxpayer in
a New Jersey emerging technology business, up to a maximum allowed credit of
$500,000 for the taxable year for each qualified investment made by the
taxpayer.

b. The amount of the credit
allowed pursuant to this section shall be applied against the tax otherwise due
under the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., after all
other credits and payments. If the credit exceeds the amount of tax liability
otherwise due, that amount of excess shall be an overpayment for the purposes
of N.J.S.54A:9-7, provided, however, that subsection f. of N.J.S.54A:9-7 shall
not apply.

c. A partnership shall not
be allowed a credit under this section directly, but the amount of credit of a
taxpayer in respect of a distributive share of partnership income under the
“New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., shall be determined
by allocating to the taxpayer that proportion of the credit acquired by the
partnership that is equal to the taxpayer’s share, whether or not distributed,
of the total distributive income or gain of the partnership for its taxable
year ending within or with the taxpayer's taxable year. For the purposes of
subsection b. of this section, the amount of tax liability that would be
otherwise due of a taxpayer is that proportion of the total liability of the
taxpayer that the taxpayer’s share of the partnership income or gain included
in gross income bears to the total gross income of the taxpayer.

d. The Executive Director
of the New Jersey Economic Development Authority, in consultation with the
director, shall adopt rules in accordance with the "Administrative
Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) as are necessary to
implement sections 1 through 3 of P.L.1997, c.349 (C.54:10A-5.28 through
54:10A-5.30) and section 4 of P.L. , c. (C. ) (pending before the
Legislature as this bill), including but not limited to: examples of and the
determination of qualified investments of which applicants must provide
documentation with their tax credit application; the promulgation of procedures
and forms necessary to apply for a credit; and provisions for credit applicants
to be charged an initial application fee, and ongoing service fees, to cover
the administrative costs related to the credit.

The amount of creditsapproved by the Executive
Director of the New Jersey Economic Development Authority and the Director of
the Division of Taxation in the Department of the Treasury pursuant to subsection
a. of this section and pursuant to section 3 of P.L.1997, c.349 (C.54:10A-5.30)
shall not exceed a cumulative total of $25,000,000 in any calendar year to
apply against the tax imposed pursuant to section 5 of P.L.1945, c.162
(C.54:10A-5), and the tax imposed pursuant to the "New Jersey Gross Income
Tax Act," N.J.S.54A:1-1 et seq. If the cumulative amount of credits
allowed to taxpayers in a calendar year exceeds the amount of credits available
in that year, then taxpayers who have first applied for and have not been
allowed a credit amount for that reason shall be allowed, in the order in which
they have submitted an application, the amount of the tax credit on the first
day of the next succeeding calendar year in which tax credits under this
section and section 3 of P.L.1997, c.349 (C.54:10A-5.30) are not in excess of
the amount of credits available.

e. As used in this
section:

"Advanced computing"
means a technology used in the designing and developing of computing hardware
and software, including innovations in designing the full spectrum of hardware
from hand-held calculators to super computers, and peripheral equipment.

"Advanced materials"
means materials with engineered properties created through the development of
specialized processing and synthesis technology, including ceramics, high
value-added metals, electronic materials, composites, polymers, and
biomaterials.

"Biotechnology"
means the continually expanding body of fundamental knowledge about the
functioning of biological systems from the macro level to the molecular and
sub-atomic levels, as well as novel products, services, technologies and
sub-technologies developed as a result of insights gained from research
advances which add to that body of fundamental knowledge.

"Control" with respect
to a corporation, means ownership, directly or indirectly, of stock possessing
80 percent or more of the total combined voting power of all classes of the
stock of the corporation entitled to vote; and "control," with
respect to a trust, means ownership, directly or indirectly, of 80 percent or
more of the beneficial interest in the principal or income of the trust. The
ownership of stock in a corporation, of a capital or profits interest in a
partnership or association or of a beneficial interest in a trust shall be
determined in accordance with the rules for constructive ownership of stock
provided in subsection (c) of section 267 of the federal Internal Revenue Code
of 1986 (26 U.S.C. s.267), other than paragraph (3) of subsection (c) of that
section.

"Controlled group"
means one or more chains of corporations connected through stock ownership with
a common parent corporation if stock possessing at least 80 percent of the
voting power of all classes of stock of each of the corporations is owned directly
or indirectly by one or more of the corporations and the common parent owns
directly stock possessing at least 80 percent of the voting power of all
classes of stock of at least one of the other corporations.

"Director" means the
Director of the Division of Taxation in the Department of the Treasury.

"Medical device
technology" means a technology involving any medical equipment or product
(other than a pharmaceutical product) that has therapeutic value, diagnostic
value, or both, and is regulated by the federal Food and Drug Administration.

"New Jersey emerging
technology business" means a company doing business, employing or owning
capital or property, or maintaining an office, in this State that has qualified
research expenses paid or incurred for research conducted in this State or
conducts pilot scale manufacturing in this State, and has fewer than 225
employees, of whom at least 75 percent are filling a position in New Jersey.

"Partnership" means
a syndicate, group, pool, joint venture or other unincorporated organization
through or by means of which any business, financial operation or venture is
carried on, and which is not a trust or estate, a corporation or a sole
proprietorship.

"Pilot scale
manufacturing" means design, construction, and testing of preproduction
prototypes and models in the fields of advanced computing, advanced materials,
biotechnology, electronic device technology, life sciences, medical device
technology, and renewable energy technology, other than for commercial sale,
excluding sales of prototypes or sales for market testing if total gross
receipts, as calculated in the manner provided in section 6 of P.L.1945, c.162
(C.54:10A-6), from such sales of the product, service or process do not exceed
$1,000,000.

"Qualified
investment" means the non-refundable transfer of cash to a New Jersey
emerging technology business by a taxpayer that is not a related person of the
New Jersey emerging technology business, the transfer of which is in connection
with either (1) a transaction in exchange for stock, interests in partnerships
or joint ventures, licenses (exclusive or non-exclusive), rights to use
technology, marketing rights, warrants, options or any items similar to those
included herein, including but not limited to options or rights to acquire any
of the items included herein; or (2) a purchase, production or research
agreement.

"Qualified research
expenses" means qualified research expenses as defined in section 41 of
the federal Internal Revenue Code of 1986 (26 U.S.C. s.41), as in effect on June
30, 1992, in the fields of advanced computing, advanced materials,
biotechnology, electronic device technology, life sciences, medical device
technology, or renewable energy technology.

"Related person"
means:

a. a corporation,
partnership, association or trust controlled by the taxpayer;

b. an individual,
corporation, partnership, association or trust that is in the control of the
taxpayer;

c. a corporation,
partnership, association or trust controlled by an individual, corporation,
partnership, association or trust that is in the control of the taxpayer; or

d. a member of the same
controlled group as the taxpayer.

“Renewable energy technology”
means a technology involving the generation of electricity from solar energy;
wind energy; wave or tidal action; geothermal energy; the combustion of gas
from the anaerobic digestion of food waste and sewage sludge at a biomass
generating facility; and the combustion of methane gas captured from a
landfill; a fuel cell powered by methanol, ethanol, landfill gas, digestor gas,
biomass gas, or other renewable fuel but not powered by a fossil fuel.

5. This act shall take
effect immediately and section 3 shall apply to privilege periods beginning on
or after January 1, 2011 and section 4 shall apply to taxable years beginning
on or after January 1, 2011.

STATEMENT

This bill, the "New
Jersey Angel Investor Tax Credit Act,” revives the expired Small New
Jersey-based High Technology Business Investment Tax Credit by establishing
credits against corporation business and gross income taxes for investing in
New Jersey emerging technology businesses. Subject to certain limitations, the
corporation business and gross income tax credits equal ten percent of a
taxpayer’s qualified investment in an emerging technology company with fewer
than 225 employees, of whom at least 75 percent are filling a position in New
Jersey. Purchase, production, and research agreements qualify as creditable
investments. The permanent program is subject to a $25 million annual cap. In
addition, tax credit recipients cannot claim tax credits for that part of an
investment in a single company that exceeds $500,000. If the tax credit amount
exceeds a gross income taxpayer’s tax liability, the State will issue a refund
to the taxpayer in the amount of the excess; while a corporation business
taxpayer may choose between having the amount of the excess refunded or carried
forward to be applied against tax liabilities in the next 15 years.

The legislation recognizes
that angel investors can play a vital part in New Jersey’s economic recovery.
Angel investments are equity placements by high net worth individuals into
high-risk start-up ventures. Some angel investors do not just invest in, but
also mentor, coach, and assist promising start-up enterprises. A 2010 working
paper by William R. Kerr, Josh Lerner, and Antoinette Schoar of the Harvard
Business School, “The Consequences of Entrepreneurial Finance: A Regression
Discontinuity Analysis,” shows that start-up firms receiving angel capital have
a significantly higher rate of survival, faster growth, and superior access to
fundraising outside the angel group than early-stage firms devoid of angel
financing. It is therefore in New Jersey’s best interest to encourage angel
investors to examine and invest in New Jersey technology start-up businesses,
as successful start-ups create jobs, generate wealth, and enhance the overall
well-being in the state.